The Pursuit of Social Justice in the South African Common Law of Contract

By Cornelia van Heerden, Heyns and Partners Inc

South Africa has a mixed or hybrid uncodified legal system. It comprises of various legal traditions, including a civil law system informed by Roman-Dutch law; a distinct influence from the English common law system; and a customary law system inherited from the indigenous African population. All these systems are interconnected, and are subject to the Constitution of South Africa, as the Constitution “is the supreme law of the Republic; law or conduct inconsistent with it is invalid, and the obligations imposed by it must be fulfilled”. Therefore, our amalgamated legal framework operates in unison, restricted only by the confinements of the Constitution.

The South African law of contract is predominantly influenced by Roman-Dutch law. It is from this tradition that the concept of good faith (bona fides) has emerged. There has been much debate on the counterweighing ability of good faith to the dominant idea of freedom of contract, and as a means of developing a doctrine of unconscionability to ensure greater fairness in contractual relations. The developing trend edged towards intertwining good faith with public policy, as well as the uniquely South African conception of ubuntu.

The notion of ubuntu was described in S v Makwanyane (CC, 1995), as carrying in it “the ideas of humaneness, social justice and fairness”, and its “spirit emphasises respect for human dignity, marking a shift from confrontation to conciliation”. It has been argued that the legal system and legal culture in South Africa will be legitimate only if they reflect the values of all the diverse cultures existing within South Africa, and that the notion of inclusivity that is inherent in ubuntu makes it an ideal overarching vehicle for expressing shared values. Good faith and ubuntu have both been associated with the aims of justice, reasonableness, and fairness in contracts by South African courts. Consequently, good faith should transcend its common law definition, and should be interpreted in line with the transformative intention attributed to the underlying constitutional value of ubuntu.

Although similar in its overall purpose, good faith and ubuntu differ, in that good faith is utilised to promote justice and fairness between two contracting parties only, where ubuntu strives to also promote the achievement of an egalitarian society. It embodies the idea that the individual has a duty and responsibility to the greater community, and purports to endorse the political, social, and economic interests of this community. Therefore, ubuntu not only requires that justice should be done between the parties with reference to their specific relationship, but also requires cognisance of the greater political, social, and economic environment in which the transaction took place.

As will be evident from the following case law, the credence and authority attached to the above interconnected concepts are not universally agreed upon in our courts.

The determinative presence of good faith in contractual dealings was criticised in Brisley v Drotsky (SCA, 2002), where the SCA stated that “neither the Constitution, nor the value system it embodies, gives the court a general jurisdiction to invalidate contracts on the basis of judicially perceived notions of unjustness, or to determine their enforceability on the basis of imprecise notions of good faith”, and that the Constitution’s values of dignity, equality, and freedom actually requires courts to exercise restraint when deciding not to enforce a contract, as “contractual autonomy is part of freedom”, and “also informs the constitutional value of dignity”.

However, the Constitutional Court in Barkhuizen v Napier (CC, 2007) took a different stance. The court held that the proper approach to constitutional challenges of contractual terms is to determine whether the term challenged is contrary to public policy as evidenced by the values that underlie our constitutional democracy and find expression in our Bill of Rights. The court continued to state that public policy represents the legal convictions, or general sense of justice, of the community, and considers the necessity to do simple justice between individuals, and it is informed by the concept of ubuntu. Public policy imports the notions of fairness, justice, and reasonableness. Accordingly, while public policy endorses freedom and sanctity of contract, it would also preclude the enforcement of a contractual term in circumstances where such enforcement would be unjust or unreasonable.

In Bredenkamp v Standard Bank of SA Ltd (SCA, 2010), the court again turned the opposite way, affirming that “fairness is not a free-standing requirement for the exercise of a contractual right”, and that “a court cannot refuse to give effect to the implementation of a contract simply because that implementation is regarded by the individual judge to be unreasonable and unfair”.

Although not expressly mentioned by name, the spirit of ubuntu was again present in Botha v Rich (CC, 2014). The court referred to its constitutional obligation, in terms of section 39(2), to develop any legislation in accordance with the spirit, purport, and objects of the Bill of Rights, as well as the constitutional ideal of transforming “a society based on injustice and exclusion from the democratic process, to one founded on the supremacy of the Constitution, the rule of law and the values of human dignity and equality”. The court also argued for an interpretation that would promote equality between the parties, which would indicate that the court was conscious of the constitutional aim of a more egalitarian society. This is in line with the idea of ubuntu that promotes social justice. The court’s judgment can be seen as an example of the harmonisation of ubuntu and good faith in the common law of contract in accordance with constitutional values (despite the fact that ubuntu is not mentioned).

This debate finally reached some measure of conclusion in the recent judgment of Beadica 231 CC & Others v Trustees for the Time Being of the Oregon Trust & Others (CC, 2020), where the Constitutional Court handed down judgment in an application concerning the proper constitutional approach to the judicial enforcement of contractual terms, and the public policy grounds upon which a court may refuse to enforce these terms.

The majority of the court held that contracting parties cannot escape the enforcement of contractual terms on the basis that enforcement would be disproportionate or unfair in the circumstances. Constitutional values do not provide a free-standing basis upon which a court may interfere in contractual relationships. Rather, these values form important considerations in the balancing exercise required to determine whether a contractual term, or its enforcement, is contrary to public policy. It is only where the enforcement of the contractual term would be so unfair, unreasonable, or unjust as to be contrary to public policy, that a court may refuse to enforce it. It was noted that constitutional values should be used creatively by courts to develop new constitutionally infused common law doctrines, which should be implemented incrementally, to provide predictable outcomes for contracting parties.

The majority of the court also maintained that Barkhuizen remains the leading authority on the role of equity in contract, as part of public policy considerations, and that the Constitution requires courts to “employ its values to achieve a balance that strikes down the unacceptable excesses of ‘freedom of contract’, while seeking to permit individuals the dignity and autonomy of regulating their own lives”. It was clear that public policy imports values of fairness, reasonableness, and justice. Ubuntu, which encompasses these values, is recognised as a constitutional value, and informs public policy.

Reference was made to AB & Another v Pridwin Preparatory School & Others (SCA, 2019), where the court set out important principles to consider when judicial control is exercised over a contract, focusing mainly on public policy considerations. These principles are extrapolated from the above case at paragraph 27, and read as follows:

1. “Public policy demands that contracts freely and consciously entered into must be honoured;
2. A court will declare invalid a contract that is prima facie inimical to a constitutional value or principle, or otherwise contrary to public policy;
3. Where a contract is not prima facie contrary to public policy, but its enforcement in particular circumstances is, a court will not enforce it;
4. The party who attacks the contract or its enforcement bears the onus to establish the facts;
5. A court will use the power to invalidate a contract or not to enforce it, sparingly, and only in the clearest of cases in which harm to the public is substantially incontestable and does not depend on the idiosyncratic inferences of a few judicial minds; and
6. A court will decline to use this power where a party relies directly on abstract values of fairness and reasonableness to escape the consequences of a contract, because they are not substantive rules that may be used for this purpose”.

The Constitutional Court, however, formulated the following principles in addition to the above:

1. Public policy requires that parties honour their freely and voluntarily undertaken obligations so that the principle of pacta sunt servanda may continue to feature as a crucial component in the judicial control of contracts.
2. Contractual relations are a major component of economic development. It is, therefore, imperative that parties are confident that the contracts that they enter into will be upheld. This certainty within contractual relations fosters a fertile environment for the advancement of constitutional rights.
3. A court must use their discretion to invalidate a contract sparingly, and only in the most clear of cases. However, courts should not rely upon this discretion to shy away from their constitutional duty to intertwine public policy and constitutional values.

This Beadica judgment reiterated that a court may not refuse to enforce contractual terms because such enforcement would, in the court’s subjective view, be unfair, unreasonable, or unduly harsh. These abstract values have not been accorded autonomous, self-standing status as contractual requirements. Their application is mediated through the rules of contract law — including the rule that a court may not enforce contractual terms where the term or its enforcement would be contrary to public policy.

The minority of the court in its dissenting judgment took a slightly different view, stating that the adjudication of fairness in contract cannot be plucked from a set of neutral legal principles. It held that ubuntu is an important value which stands alongside other values such as good faith, fairness, justice, equity, and reasonableness. Characterising ubuntu as an adjudicative value in reaching substantive fairness between contracting parties would achieve a constitutionally transformative result. The recognition of ubuntu in interpreting contracts, would also not undermine the concept of certainty and contractual autonomy.

Although the importance of good faith and ubuntu seems to be rising in the law of contract, their presence as principles in their own right is still not recognised. This is problematic considering the transformative nature and purpose of our Constitution, and its liberal expectation of the South African legal system.

RESOURCES:

Legislation:
The Constitution of the Republic of South Africa, 1996

Case Law:
S v Makwanyane (CC, 1995)
Brisley v Drotsky (SCA, 2002)
Barkhuizen v Napier (CC, 2007)
Bredenkamp v Standard Bank of SA Ltd (SCA, 2010);
Botha v Rich (CC, 2014)
AB & Another v Pridwin Preparatory School & Others (SCA, 2019)
Beadica 231 CC & Others v Trustees for the Time Being of the Oregon Trust & Others (CC, 2020)

Articles and Textbooks:
“The Law of Contract in South Africa”, 3rd Edition by Dale Hutchison and Chris Pretorius (editors)
“Harmonising Legal Values and Ubuntu: The Quest for Social Justice in the South African Common Law of Contract” by Hanri Du Plessis
“Legal Pluralism, Ubuntu and the Use of Open Norms in the South African Common Law of Contract” by Hanri Du Plessis
“Good Faith in Contract: A Uniquely South African Perspective” by Andrew Hutchison
“Can Unfair or Unreasonable Contracts Be Set Aside? The Constitutional Court Provides Clarity” by Anja Hofmeyr and Gareth Howard
“South African Law of Contract: The Question of Fairness and Public Policy Considerations Answered” by Azhar Aziz Ismail, Alon Meyeroy and Gregg Hammond
“Ubuntu: Fundamental Constitutional Value and Interpretive Aid” by Sivhaga Netshitomboni.

Cornelia van Heerden

GGI member firm
Heyns and Partners Inc
Tax, Law Firm Services, Advisory, Fiduciary and Estate Planning
Cape Town, South Africa
T: +27 21 590 72 00
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Heyns and Partners Inc was founded in 1958 and started to conduct business under its current name in 1986. It is privileged to represent a diverse and extensive client base, both corporate and individual, offering litigation, conveyancing, and notary services.

Cornelia van Heerden joined Heyns and Partners Inc. in 1990 as an attorney and conveyancer. She was appointed a director in 1993. Cornelia specialises in High Court litigation in the area of claims for damages in respect of personal injuries, damages resulting from property transactions and contracts, and family law.

Published: Litigation & Dispute Resolution Newsletter, No. 13, Autumn 2020 l Photo: druid007 - stock.adobe.com